Wall Street Is Shocked: How Much Does Bloomberg Know?

Beyond Wall Street firms, customers of the more than 300,000
leased Bloomberg terminals across the globe include clients as
prominent as the Federal Reserve and the Vatican. As Bloomberg
executives acknowledged the privacy breach as a "mistake" and
tried to downplay the controversy, it was still not clear how
widespread the practice of peeking into customer terminals was
among Bloomberg reporters. Bloomberg has said it has
discontinued allowing reporters to access subscriber
information.

"I think this caught (Bloomberg LP) blind-sided because there
has been this kind of access for 20 years or so," said one
former Bloomberg LP executive, who wished to remain anonymous.
"I think they just forgot reporters had this kind of access,
until now. Or maybe they are Machiavellian enough that they
said let's keep it on until somebody discovers it."

The origins of this access may have started first when
Bloomberg, as a demanding CEO, mandated that every employee in
the company, from sales persons to journalists, call a client
once a quarter and ask them if they were having any issues, or
needed any help. "It gave employees a feeling that they had
something to do with the clients," the former executive said.
"That was around the time this kind of access was put in
place." Some clients, however, such as European central banks,
stipulated that none of their information be shared. And a
decade ago, Swiss banks raised questions about whether certain
shared data violated Swiss bank secrecy laws.

Since being elected mayor in 2001, Bloomberg has removed
himself from the daily operations of his company. As of
Saturday night, he had not commented on the breach. The current
CEO, Daniel Doctoroff, once a managing partner at private
equity firm Oak Hill Capital Partners, told employees in a memo
Friday "client trust is our highest priority."

At its core, the controversy underscores the paradox of the
32-year-old Bloomberg LP, a privately-held company that is
vigilant in not disclosing information about its own finances
and operations while generating $8 billion a year in revenue
providing and collecting massive amounts of data. The terminal,
with its countless functions, may just serve as a window into
Wall Street's second-to-second operations. While coveted by
traders and other professionals as an indispensable tool, the
terminal and its ubiquity in the financial sector may turn this
into a much bigger headache for Bloomberg, Tabb said.

Meanwhile, the controversy has Wall Street buzzing. One
hedge-fund manager, who wished to remain anonymous, described
the Bloomberg practice as "shocking," and he has asked his
lawyers to review his agreement with Bloomberg to determine
what kind of usage information Bloomberg can access from his
fund's terminal. "My initial reaction was a bit of
schadenfreude. Like, finally, Goldman's getting spied on. But
then I realized, while it's fine to spy on Goldman, they could
be spying on me," he said.

A source at JPMorgan Chase, who also wished to remain
anonymous, said that several Bloomberg reporters have used data
about when traders at the firm log into their terminals as the
basis for stories about the bank. "They were quite open about
it. They'd say, 'We see your Whale trader hasn't logged in
three days. Has he been fired?'" the person said. Bloomberg
reporters once asked if JPMorgan was pulling back in a certain
market segment based on the fact that several traders in that
area had not been logging in regularly.

"They were trying to figure out our strategy based on who was
logging in. That was disturbing," the person said. JPMorgan
complained to the reporters involved but did not raise the
issue with Bloomberg executives.

Still, despite new competition from a Thomson Reuters
data platform called Eikon and new offerings from Interactive
Data Corp., Tabb believes the controversy will not greatly
pinch Bloomberg's sale of leases, which average between $1,600
and $1,800 a month. "Wall Street is used to paying a premium
for the terminal because they know they can't get what it
provides anywhere else," he added.

What's more, the publicity surrounding the privacy breach could
drive an even bigger wedge between the journalism side of the
company and terminal sales, the revenue-generating side of the
house, a relationship that historically has had tension. Some
on the sales side have seen the growing investment in
journalism as a drag on the company's bottom line.

In December, it emerged that the incentive for a
much-anticipated bonus program would not be reached, according
to a report on CapitalNewYork.com. Under the program,
employees would have received bonuses of up to 70 percent of
their average salary if the company hit $10 billion in revenues
between July 2013 and June 2014. A memo went around last year,
according to the report, saying that the target would not be
achieved.